Canadian National's future acquisitions will 'feed the beast'

Dive Brief:

Future acquisitions by Canadian National Railway (CN) could come in the form of any company that brings more volume to the railroad, CN CEO JJ Ruest said on an earnings call Monday
"So you look at our rail lines, our main line rail line and you look at businesses who would contribute to increase the amount of carload or container on that rail line. So it's something that would feed the beast," said Ruest when asked about potential future acquisitions.
CN completed the acquisition of Manitoba-based trucking company TransX in March. Ruest said that move is already paying off in terms of driving conversions from truck to rail. "We're very, very pleased with how it's going," he said.

Dive Insight:

One of the major benefits to the TransX acquisition was the "entrepreneurial shift" in thinking the team brought to the railroad, Ruest said. As one of the oldest trucking companies in Canada, TransX is far from a startup, but Ruest said the more agile way of thinking will benefit the railroad before cost synergies set in.

"We've already had several examples where we needed to find a solution to something. And within hours of talking to them and sitting down, we were able to come up with those solutions," Ruest said.

Some work will be needed to get TransX in better shape in terms of profitability, Ruest said.

"We were going to work as a team to help them be able to drive more revenue, more profitable revenue at TransX," he said. "And they, in turn, are teaching us to be a little bit more entrepreneurial and be able to get things done little bit quicker, little bit more nimble."

Additionally, the higher headcount from TransX's 1,300 staff hit the railroad's often envied operating ratio (OR). CN's adjusted OR in the first quarter was 67.2% — up from an OR of 61.2% in Q4.

When Ruest sees a good investment, "we are inclined to do these things as opposed to sit on the sideline and shave off one more point of OR ... What you're seeing from CN is a more balanced scorecard than strictly pure [precision-scheduled railroading]," he said.